Wow, Obama bank tax may actually pass

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The U.S. Congress, particularly the Senate, has been a graveyard for aggressive financial reform. And banks are hoping President Obama’s new bank levy will suffer a similar fate. They shouldn’t count it. A clever design and a determined White House push mean Wall Street may have to pay up.

At first glance, the proposal would seem to have no better chance than a number of other relatively tough measures stuck on Capitol Hill. A transaction tax — often called a Tobin tax — and a supertax on bank bonuses are among ideas that appear to have no future. For each, support in the Senate has been lacking.

But smartly constructed policy can make the politics easier. Legislators see easily the logic in focusing a tax on the liabilities of institutions that make use of hot, wholesale sources of finance. Structurally, that looks a lot like the levies the Federal Deposit Insurance Corporation charges for deposit insurance — and the government’s recent role rescuing banks wasn’t so dissimilar from what FDIC does with deposits. (Though it still seems likely that it will nick credit availability.)

Also, the tax is supposed to hit investment banks hardest. That means it can be billed as the Goldman Sachs Tax. In Washington as in Hollywood, an obvious villain helps sell a story.

The Obama administration views the tax as a splashy way of touting policies designed to prevent a repeat of the financial crisis. Unable to loudly trumpet an economic recovery as November’s elections loom, a populist battle against Wall Street is seen as the next best boost for Democrat candidates.

Republican objectors will be forced to side with the banks. And there just might be fewer Senators willing to do that than Wall Street needs. While there are a couple of Democrats whose support can’t be counted on, Republicans Chuck Grassley of Iowa and Olympia Snowe of Maine cosponsored a bill last year that would have taxed bonuses at banks that received government help. They and other moderates in the GOP might support the tax if they believed it would help reduce the U.S. deficit.

At the same time, any notion that the bank levy could become a permanent tax would rally Republicans against it. But as things stand, the tax — rather surprisingly — seems to have avoided being seen as dead on arrival.

Excuse me but Proreason have you ever looked at financial statements for companies???? Do you know what line for tax provision is on the P&L statement? Companies may hundreds of millions to billions of dollars in taxes, way more than you ever will. The corporate tax rate in the US is around 35%. Plus do you want companies taxed more?…meaning a loser like you gets fired cause they have to layoff due to increased tax provision expenses? Do you Proreason even have a clue how a large corporation is run?

Taxing businesses causes them to pass the tax on to the citizen.
This happens in part because these business are treated like actual people. AIG for example is considered a person and a citizen under our law. So these executives don’t get directly taxed on their profits. This allows companies like AIG to charge the extra taxes down to the customers in the form of fees.

Remove citizen status from these companies. They must not be treated like people. These businesses are made up of people. And these people must be held directly accountable for their actions. If that means that a whole bunch of them go to jail then so be it.

Corporations have no right to be treated as citizens. Only citizens can lobby congress. With the kind of money these corporations have at their disposal they ensure that their interests are secured while true citizens get the shaft.

Also corporate status was never meant to be used the way it is. They were originally government bodies that were chartered to perform specific tasks that they were not allowed to deviate from. And most of the time they were only temporary. But now they have been perverted into sociopathic “citizens” with money and influence enough to destroy the fabric of American families through predatory and fraudulent business practices. That they then petition government to bail them out of any mess they get into is a slap in the face to every American citizen working tirelessly just to make ends meet.

Remove their citizen status and hold officers directly accountable for the mess they created. Put the citizenry back in its rightful place. Only we can lobby congress. And we need to push government to recognize and acknowledge that only true citizens can have a say in what goes on.

Let’s be clear about this: major banks aren’t like people. Some would go so far as to say they dis-like people. After all the American people have been through with major banks, the feeling’s understandably mutual.

For too long, major banks have had far too much representation without even close to enough taxation. So it would be nice if the “Obama bank tax” would function at least as well as cadillac coverage taxation of individuals.

After all, the banks have Single Payer health insurance – which works like a charm – in the form of FDIC. They seem much happier that way than paying insurance rates in any private sector. Who in their right minds wouldn’t be?

Still, it would be nice if the major banks paid their fair share, the way people in general are supposed to. But without a fight, they’re obviously not gonna.

Making nice with the corporations has obviously failed, so now the time has come for some tough love. Meanwhile, all their wailing about a little tax that doesn’t go nearly far enough is like Bernanke- Bank- errr, Brer Rabbit going, “Please don’t throw me and my pals in the briar patch!”

Screw the briar patch. Not only not enough, that would be taxing an illegal activity and so unconstitutional. Asset forfeiture and jail would be more like it. In the real world, other than taxes, there’s always death.

The American financial sectors response to the current crisis was not to fix or address the problems that caused the crisis.

Instead of fixing the problems, they created a legal way to hide the losses.

The US financial lobby got congress to change its Accounting Mark to Market rule, the rule that used to require financial institutions to recognize and report all losses in the period the loss happened in.

If the loss happened in the third quarter, your financial statements for the third quarter had to show the losses.

After the collapse, the financial institutions simply got the financial reporting rules changed so they can keep worthless assets on their books at pre-financial collapse values.

If you don’t have to report the loss, the only thing left to report are profits.

The US financial system operates on the premise of pay for performance; they get paid bonuses and commissions on the earnings they report, no matter how those earnings were created.

They realized three things:

By changing the Mark to Market rule, we won’t have to show the losses.

Because we won’t have to report the losses, we can pay back the bailouts.

When we pay back the bailouts, we can get paid our bonuses and commissions.

How did they do it?

The financial sector lobbied and got congress to change the Mark to Market rule.

The Mark to Market rule governed the way losses were reported.

Now they don’t have to report the losses.

They created profits out of nothing by changing a few
accounting rules.

The US financial sector has created a legal means for hiding and not reporting losses. It was such hard work that they feel they have earned their bonuses and commissions, and they are taking them.

There is no recovery, there are no jobs, and there are no real profits.

Seems like a good thing to do….tax and redistribute while dangers of depression still abound. As an investor in Goldman you can imagine this isn’t what I want coming out of DC. But it’s the moral thing to do (sarcasm).

Maybe congress can pass a bill that will protect us from all these Chinese imports. Smoot and Hawley would be proud.

What is $90 billion, when banks have gotten several different forms of taxpayer bailouts, that count in the $ trillions? When are are talking about TARP, we are not talking about the money dumped through AIG to the invetment banks. Do you think the Federal Reserve buying back MBS and Agency securities over par helped any TBTF banking institutions. How about zero percent loans given by the Fed so the banks could invest in risk free Treasuries at 3.5%?

The American taxpayer is being RIPPED OFF. And this article goes WAY OFF track in surmising the political implications. This tax proposal on the banks is a PIMPLE compared the to damage that has already been done. As other have noted, it is likely to be ineffective between pass-thoughs and, oh, governement sponsored tax write-off the banks will still enjoy as they carry over the “tough times”.

Banks are being allowed to dump $ billions of bonuses for their exectuives– while if standard accounting practices were in place– many of these same banks would be INSOLVENT. Banks need to REPAIR their balance sheets under standard accounting practice BEFORE they are allowed to pay bonuses. Call it a real clawback if you will.

This isn’t a Republican or Democrat issue– both major political parties have sold out their own constituencies. People just need to realize the magnitude is $ trillions more than the $90 billion carrot paraded around.

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James Pethokoukis is the Money & Politics columnist for Reuters Breakingviews. Previously, he was the business editor and economics columnist for U.S. News & World Report. Pethokoukis has written for many publications including The New York Times, The Weekly Standard, Commentary, USA Today, and Investor's Business Daily. Pethokoukis is also an official CNBC contributor. In addition, he has appeared numerous times on MSNBC, Fox News Channel, Fox Business Network, The McLaughlin Group, CNN, and Nightly Business Report on PBS. A graduate of Northwestern University and the Medill School of Journalism, Pethokoukis is a 2002 Jeopardy! champion. james.pethokoukis@thomsonreuters.com